The next financial crisis is just around the corner. It is only a matter of time until once again the world economy will be shocked by a massive contraction of liquidity. All markets are linked, and the origin of a new crisis can come from anywhere. A global financial crisis is the result of an interplay between domestic and external factors. The drama has many players and none of them is innocent.
The impact of Hurricane Florence was evident in the September employment report as nonfarm payrolls rose just 134,000. However, the preponderance of data suggests the labor market remains robust and that the economy is likely to grow at a healthy pace.
The latest monthly reports from the Institute for Supply Management show that the economy continued to expand at a robust pace in September. Details in both reports were decisively positive and suggest strong, broad-based growth in the economy.
Personal income and consumer spending are up 5.3 percent over the past year. Together, these support a positive outlook for the economy with a low probability of recession over the next several months and quarters.
New orders for durable goods jumped 4.5 percent in August while orders excluding aircraft increased 1.4 percent to a new record. Today’s reports suggest that demand remains strong and that the broader economy is maintaining solid momentum in the second half of 2018.
Sales of new single-family homes rose 3.5 percent in August and are up 12.7 percent from a year ago, however, they are down 11.7 percent from November 2017. Declining affordability suggests that sales are unlikely to move significantly higher in the coming months.
Housing starts rose by 9.2 percent in August. However, housing permits, an indicator of future activity, fell in the latest month, hitting the lowest level since August 2016. Combined with rising interest rates and falling affordability, the outlook for housing is deteriorating.
Consumer Sentiment jumped in early September while retail sales and industrial production both posted modest gains though with mixed results among the details. Overall, the three reports suggest solid growth trends, supporting a positive outlook.
The small-business-optimism index from the National Federation of Independent Business jumped to 108.8 in August, a new all-time high. Job openings also reached a new all-time high. Combined, these reports indicate on-going economic strength and support a positive outlook over the coming months and quarters.
"A crucial reason why monetary and fiscal planners fail traces to the indicators they use as the signposts for what they may need to do are themselves false signals hiding from view the reality of the complex market system." ~ Richard Ebeling
U.S. nonfarm payrolls added 201,000 jobs in August bringing 12-month total to 2.33 million new jobs while hourly earnings rose 0.4 percent for a 12-month gain of 2.9 percent, the fastest since 2009. Broad-based gains in the labor market are providing support for consumer confidence, consumer spending, and the economy overall.
The ISM’s nonmanufacturing index rose to a reading of 58.5 from 55.7 in July. The results suggest the nonmanufacturing sector continued to grow in August. That performance is in line with the report for the manufacturing sector and other recent data that point to ongoing expansion for the overall economy.
The Manufacturing Purchasing Managers’ Index registered a 61.3 reading in August, the highest reading since 2004. All five components of the PMI showed stronger readings in the latest month. Today’s report suggests a positive outlook for manufacturing.
Personal income rose 0.3 percent in July while total personal consumption expenditures (PCE) rose 0.4 percent. Gains in disposable income should provide support for future increases in spending and suggest a positive outlook for the economy.
A new recession would not only mean lower or even negative economic growth rates, it would also induce governments to increase public spending. Then, the public debt quotient (debt over gross domestic product) would rise because of a lower denominator and a higher numerator. With the interest rate at historical lows, and the debt ratios already at the point of fiscal unsustainability, there is no space for a new stimulus.